22nd April 2020 - AUD poised to move lower as risk assets quake

Good morning

OVERNIGHT DATA AND HEADLINES

U.S. home sales dropped by the most in nearly 4-1/2 years in March as extraordinary measures to control the spread of the coronavirus brought buyer traffic to a virtual standstill, with realtors and economists expecting a further deterioration in housing market activity through the second quarter. Existing home sales tumbled 8.5% to a seasonally adjusted annual rate of 5.27 million units last month. The percentage decline was the largest since November 2015. The data reflected contracts signed in February or even January, before measures to curb the spread of the virus paralyzed the economy. The NAR said it expected a steeper decline in sales in April and in the few months thereafter, derailing the normally busy spring selling season. Sales fell in all four regions last month. Economists polled by Reuters had forecast existing home sales would tumble 8.1% to a rate of 5.30 million units in March. Existing home sales, which make up about 90% of U.S. home sales, rose 0.8% on a year-on-year basis in March.

The mood among German investors improved in April with the ZEW economic sentiment rising to 28.2 from -49.5 in March. Economists had expected a much smaller improvement to -42.3. German carmakers have restarted production at some factories this week after the country eased restrictions designed to contain the coronavirus outbreak. Certain shops are now allowed to open, but strict social distancing rules remain in place.

The number of British people in jobs grew more slowly in March than in February, growth in the number of people on companies' payrolls dropped to 0.8% in March from 1.1% in February, according to preliminary tax data that was released earlier than usual. Government budget forecasters last week said unemployment could rise as high as 10% with an extra 2 million people losing their jobs if a three-month lockdown was only slowly lifted over the next three months.

The U.S. Senate on Tuesday unanimously passed legislation providing nearly $500 billion in additional federal aid to help small businesses hurt by the coronavirus pandemic and to aid hospitals dealing with large numbers of seriously ill patients. The bill, which is supported by the White House, now goes to the House of Representatives where it could be voted upon as soon as Thursday.

Wall Street tumbled for a second straight day as a collapse in U.S. oil prices and glum forecasts by companies worsened fears of a deep economic downturn. All 11 S&P 500 sector indexes fell 1.6% or more, with energy sliding for the seventh time in eight sessions a day after the WTI contract crashed below zero as oil traders ran out of storage for May deliveries. With the collapse spilling into June futures contracts, equity investors became wary of the extent of the economic damage from sweeping lockdown measures that have halted business activity and sparked millions of layoffs. Dow Jones fell 2.67% to end at 23,018 points, while the S&P 500 lost 3.07% to 2,736.57. Nasdaq dropped 3.48% to 8,263.23.

CURRENCIES

The USD rose as investors sought safety as a slump in oil prices sapped appetite for risky assets. The DXY index was 0.23% higher at 100.18. The index hit a two-week high of 100.48 earlier in the session.

China's yuan eased to a 2-1/2-week low - onshore CNY opened at 7.0840 per dollar and slipped to a low of 7.0980 at one point, the weakest since April 3. Recovered back down towards 7.0915.

EUR jumped to a 1.0880 high, giving up some gains into NY close to open at 1.0857.

GBP plummeted more than 1.00% lower from a 1.2449 high down towards 1.2248 low. Opens at 1.2300.

AUD lost ground as dire data at home underlined the economic toll of fighting the coronavirus. AUD slipped from 0.6325 to 0.6254 lows, small rebound to open at 0.6280.

NZD plummeted to 0.5935 lows (from 0.6035) but found some interest to open 1.00% lower at 0.5976.

AUDEUR fell 100 points, from a 0.5874 high down towards 0.5774 on EUR strength. Closed up at 0.5790.

AUDNZD regained all its previous losses, jumping back up to trade 1.0540 after breaking through 1.0500 support to a 1.0480 low.

TREASURIES

Safety-seeking investors bought U.S. Treasuries, pushing yields on the five-year note to a record low, as the difficulties of restarting the U.S. economy amid the COVID-19 pandemic sank in.

The U.S. 10-year yield was down 5.7 basis points in afternoon trading at 0.5691%. Yields on the five-year note hit an all-time low of 0.301%, and on the two-year its lowest since 2011.

The two-year U.S. Treasury yield was essentially unchanged at 0.2034% in afternoon trading.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes was at 36 basis points, about 7 basis points lower than at Monday's close.

Italian bonds extended their sell-off, pushing yields to levels not seen since the ECB's announcement of emergency bond purchases. Italy's 10-year bond yield rose 21 bp to 2.17%, the highest since March 18.

COMMODITIES

Gold prices dropped nearly 2% to a near two-week low, while palladium slumped 15.5% as investors scuttled for cash to cover losses in other asset classes mainly driven by a crash in oil markets.

Spot gold slipped 1.3% to $1,672 per ounce, having earlier hit a low since April 9 at $1,659.68. Palladium fell 9.5% to $1,958.00, having earlier fallen to $1,827.92. Silver dipped 4.3% to $14.71.

Chinese iron ore futures slumped, retreating from a more than 8-1/2-month closing high hit in the previous session, on concerns about surplus supply as demand hit outside China. Prices for spot cargoes of iron ore with 62% iron content fell to $87 per tonne.

Industrial metals prices fell with copper down more than 2%. Benchmark LME copper was 2.7% lower at $5,045 a tonne, down from Monday's one-month high of $5,248.

Other metals: LME aluminium was down 0.8% at $1,490.50 a tonne, zinc fell 1.7% to $1,914, nickel slipped 2.3% to $12,225, lead lost 1.5% to $1,663.50 and tin was down 2.5% at $14,840.

Brent oil futures prices plunged again, extending the oil market's panic into a second day with no end in sight to a swelling global crude glut as the coronavirus pandemic has obliterated demand for fuel. Monday and Tuesday have been two of the most turbulent days in the history of oil trading, as investors confront the reality that worldwide supply will overwhelm demand for months or years and current production cuts to offset that glut are nowhere near sufficient. After Monday's trade, when the front-month May U.S. contract fell into negative territory for the first time in history, Tuesday set a new milestone as more than 2 million contracts for U.S. crude for delivery in June changed hands, the busiest day in history. Brent futures for June delivery settled down 24% to $19.33 a barrel, their lowest since February 2002. U.S. West Texas Intermediate (WTI) crude for June, the front-month contract as of Wednesday, fell $8.86, or 43%, to settle at $11.57. The U.S. May contract, which expired on Tuesday, rebounded from its deep dive into negative territory, rising to $10.01 from its settle at minus $37.63 on Monday.

ECONOMIC CALENDAR TODAY

Australia - March Westpac MI leading index (last -0.96%). Set for a steep fall this month.

Another night of 'risk off’ momentum soured any attempts for AUD to gain, slipping further lower towards 0.6254 lows after opening yesterday at 0.6333. Markets and investors drove into USD & JPY safe havens as the selloff in Oil markets (this time Brent oil), found fresh highs in the USD DXY index to a 2 week high at 100.48.

AUD's rally off the March 19 daily low (0.5510) could be in trouble. It was already dealt a blow by the sharp fall on April 15 and now the deterioration in risk sentiment is driving assets typically correlated with the AUD lower.

U.S. equity futures have fallen back below and threaten key support near 2,700. Oil's massive plunge has helped drag the commodity complex down with copper and iron-ore lower while reminding investors that the global economy remains seriously damaged. Government bond yields are sinking again as investors seek safe haven assets.

Today in Australia we have the release of the March leading index which is set to register a steep fall as the coronavirus shock impacts more fully in March. The Index growth rate slowed materially to –0.96% in Feb but will likely fall several percentage points in March. The March read will incorporate several extremely weak component updates including: the ASX200 (-21.2%); Consumer Expectations Index (-12.8%); US industrial production (-5.4%); and the Unemployment Expectations Index (+8.2%, higher reads signalling a weaker outlook). There will be some significant offsetting supports from commodity prices (+3.5% in AUD terms); dwelling approvals (+19.9% vs -15.1% last month); and the yield spread, which widened 27bps as RBA rate cuts and aggressive QE lowered the short end. Hours worked have also been steady. However, this will not stop a large headline fall and points to more vulnerability ahead if/when these other components start to turn.

For the AUD, opens this morning at 0.6280. Bearish risks (see above) have driven AUD below the 10-DMA and through the 38.2% Fibo of 0.5980-0.6445. AUD is also being helped lower by the falling daily RSI and daily cloud base. Key support in the 0.6195/0.6215 zone is approaching. Should risk sentiment fall further that support is likely to break, triggering stops. Longs are likely to exit positions and bears gain confidence.